City File: How property companies are valued

HOW DO you value property companies? With share prices in the sector standing at an average discount of 44 per cent to net asset value, compared with the historic average of 25 per cent, investors clearly no longer believe in this yardstick. But with a question mark over the safety of the dividend at such blue chips as MEPC, Hammerson and Slough Estates, yield is not a much better option.

County NatWest thinks earnings may offer a better guide in the current market. It has calculated the 'pure' earnings multiples of the top six companies, based on rental income (ignoring disposal profits), total interest (whether capitalised or not) and administrative costs.

That puts Land Securities and Great Portland Estates at just over 11 times prospective earnings, compared with 14 for the market. Hammerson, MEPC and Slough Estates range from 16.5 times to 26.2 times. British Land, thriving so far, comes in at 24 times, but that may be discounting the pounds 40m extra rent guaranteed through its sale and leaseback with Sainsbury's.

That is the reverse of what would be expected, confirming that the market has no idea what the values should be. Or perhaps it has stopped caring.